Originally posted by pipo.p:

You can slightly reconsider things; just pretend that Greydwarves are tree spirits, and that for each fallen tree two of them will spawn. Granted this doesn't really explain their number, but it's a start.

I'd be in favour of it working this way!

More reasonably though, I think greydwarves should require trees in order spawn.
Deforesting a region should stop them spawning.
I'd also like to see deforestation (and terraforming in general) reflected on the map.